We certainly make our share of mistakes, so don’t misread the absence of any gold mining exposure in our client portfolios as bragging. Regular readers of this blog will be aware of the occasional wrong turn. One of the most insightful lessons of Behavioral Finance is the overconfidence many people have in their forecasts of all kinds of things, from jellybeans in a jar to quarterly earnings. A recognition of how little short term certainty there is creates some humility around position sizing, and hopefully makes the inevitable mistakes small.

Writing about gold when it’s just had its biggest drop in 30 years is only for those who weren’t involved. The all-too-obvious problem with gold is that you can’t figure out its NPV, because it generates no cash. Instead it consumes a lot to dig it up, move it and store it. So we don’t avoid it because we’re bearish, we just can’t figure out its value. From time to time I’ll run in to people who own some gold as their, “when all else is lost at least I’ll have some” investment. The game’s not over, and they may turn out to be smarter than we are. But I always respond that if inflation is your fear, wouldn’t you rather own shares in companies that sell products everybody wants and have pricing power? Like Coke (KO), which reported earnings this morning ahead of analysts’ expectations.

There are some scenarios involving civil strife and a complete breakdown of civilization in which shares in KO or any other financial investment might be useless, and a stash of gold plus an armory a more appropriate position. You can’t be certain of very much, so even that has a probability > 0%. But 5%+ inflation and the discrediting of fiat money is a higher probability (albeit not yet the most likely outcome in our view). A portfolio of investments in companies that look like KO will probably offer a better prospect of holding its value than a lump of yellow metal. Businesses that can sell a little more product annually to the growing consumer base in emerging economies, and can be relied upon to pass through the cost increases that higher inflation might impose, can remind you why you own them each quarter

Gold will not have many days like yesterday, maybe not for at least another 30 years. But if you prefer the Coke Standard to the Gold Standard at least you have some future cashflows to estimate and present value back to today.

My friend Josh Friedlander, Editor at Absolute Return, has written a very good essay in the Hedge Fund Intelligence Global Review 2013. Unlike most journalists covering the sector who offer uncritical praise of their subjects, Josh asks some very pertinent questions about the future of the hedge fund industry. He’s asking the right questions. Hedge fund investors would benefit from more critical thinking like this.

Here’s a piece AR Magazine invited me to write.

This is the title of a “mini-book” by William Bernstein. I just came across a review of it by Larry Swedroe. I haven’t yet read Mr. Bernstein’s book (I just ordered it this morning) but Swedroe’s review caught my attention. It looks as if a three factor analysis of hedge fund returns has arrived at the same conclusion I did in my book – that hedge funds used to be great, that early investors did well, and that the industry today is overcapitalized.

David Hsieh, Professor of Finance at Duke’s Fuqua School of Business suggested that alpha is finite, and that’s why today’s hedge fund investors will continue to be disappointed. Makes perfect sense to me. So now we have some real academics weighing in on the debate, as opposed to the pseudo-variety hired and paid for by AIMA in London.  Mediocre returns delivered at great expense continue, providing additional support for the critics.

Canada’s Business News Network picked up on my recent blog on Agrium (AGU) and the company’s plan to pay Canadian financial advisers who vote their clients’ shares in favor of management’s slate of Board nominees. Here’s a brief spot I did earlier today.

Who thought that Canadian equity markets operated with shareholder protections that would bring even a developing country’s regulator to shame? Here’s the story: Agrium (AGU), a poorly managed producer and distributor of agricultural products in Calgary, is engaged in a proxy fight with Jana Partners, an activist investor with some very good ideas on how AGU could improve its performance. Jana has proposed its own slate of five nominees for the Board of Directors, people who it believes will improve the Board’s ability to run its retail business. AGU hasn’t welcomed Jana’s interest, and in the upcoming vote it transpires that AGU will be paying Canadian financial advisers who vote their clients’ shares in favor of AGU’s nominees.

It’d be bad enough to pay individual shareholders to vote a certain way, but paying their advisers? Are the Canadian managers of client assets really up for sale? Are they really the world’s oldest profession?

It’s a quite extraordinary set of circumstances, surely not a way of doing business that Canadian regulators can defend. We are invested in AGU. Jana’s interest piqued ours. AGU’s vote-buying makes it a more attractive investment, since it confirms the poor judgment of current management. Their continued tenure is surely now more tenuous.

My thanks to Joshua Rogers, a contributor to Forbes, for wading in to the debate on hedge funds. You can read his post here, and scroll down to see my comment in response.

Here’s a brief spot I did earlier today.

The EU has come up with a novel way of trampling over depositors’ rights in Cyprus with their proposed “tax” on depositors of Cypriot banks. So far through the Eurozone crisis depositors have been left whole, but the news on Saturday suggests they’ll be unwilling participants in the latest bailout. One might expect senior and subordinated debtholders to be taking a loss as well before depositors. That would be the more appropriate treatment of their capital structure. However, their €19BN economy supports a banking system with €68BN in customer deposits, and this highly leveraged system has hardly any senior debt outstanding. So finding the €5.8BN needed requires going after the depositors.

Even more amazing is the reporting that the tiered haircut (latest proposal of 3.3% on deposits below €100,000, 9.9% from €100,000-500,000 and 15% above) is designed to grab a significant amount of Russian investors’ money. The Cypriot President Nicos Anastasiades is a brave man.

One would think that a logical consequence of this move would be for Greek depositors to pull their cash from the Greek banking system. It’s probably a stretch to assume a run on Italian and Spanish banks,  but it must be a good bet now that the next Greek bailout will place their depositors at risk. This particular genie is out of the bottle. It’s frankly amazing that anybody ever held more than €100,000 in Cypriot deposits to begin with, but it must be that the days of large, unsecured deposits being held in southern European banks are numbered.

We haven’t changed any positions on the back of this news. The US$ should benefit but we’re not yet short the Euro. We still like being long US$ versus the Yen. America’s respect for property rights rests on a more solid foundation than in some other countries. The biggest positions we own (CXW, BRK, MSFT) are not overly exposed to such turmoil. But this news does potentially complicate the investment outlook.

I’m sure many found this riveting today. I worked with Ina Drew for many years and I’m sure like everybody who knows her was amazed at the losses last year. I grew to have enormous respect for Ina’s ability and can only imagine how difficult the past 15 months has been for her.